What Am I Doing Wrong?

fiisch

So I've read the books, I've woken up and realised I need to start a rainy-day fund and pull back the spending. Curious to see if there's anyone on here willing to offer their opinions/criticisms, and any suggestions on how to improve our financial outlook.


I am: 30; married; higher-rate tax payer; chunky mortgage.


Pension: 10% salary (non-contributory), circa £6k/yr. Option to increase AVC to 5% - each 1% matched by employer with additional 0.5%, up to 2.5% - i.e.: AVC's 5%, Employer additional contribution 2.5%, + initial 10% = 17.5%. (Matched contributions increase to 1% per 1% over age 36).


Monthly expenditure:

• £3,150.00. Of this, most notable are £855 mortgage (overpayment of £35/month); car finance (£212 + £489); loan (£222, £7k remaining, 3.2%);

Monthly Income

• £3,700.00 projected - wife is returning to part-time work after maternity next month.

My wife has no pension whatsoever, and in the industry she's in (homecare) the employer offerings are generally very poor.


The Plan

• Continue saving £500 per month;
• Continue £50 / month into MoneyFarm;
• First - pay off Ikano Loan;
• Second - pay down expensive car finance (my weakness) - £489 / month. £3,000 mid next year will drop payments by >£200 / month, and then at the end of the year look to buy the car outright (may require a loan);
• Increase Moneyfarm investment, open Vanguard LS (80/20) in wife's name;
• Increase AVC to pension.

Are my priorities/ideas in the right order? Is there anything from this I should/could be doing better in your opinion?


We have always previously pretty much spent our earnings, but after a period of contracting we've managed to build a small safety net of £6k, and now I've started in permanent employment we want to keep the savings and investments going. (We have also opened a JISA for our newborn, but currently we only contribute £25 / month).

chockydavid1983

What are the interest rates on the car finance, loan and mortgage?
Generally best to hit the higher interest ones first.

Zola.

Just shy of £500 a month on a car, thats an incredible amount of money going on a depreciating asset, even if you are really into cars.

For £500 a month I'd be wanting a Ferrari with fuel ! 500 a month is basically another mortgage. That's the only thing that jumps out at me, but its a biggie.

fiisch

Car Finance @ £489 / month (5.2%)
Car Finance @ 212 / month (4.84%)
Loan @ 222 / month (3.2%)
Mortgage @ 855 / month (1.79% - coming up for renewal)


Mortgage is 75% equity, we put in 5% deposit, 20% is still owned as government share under the Help To Buy scheme.


Yeah, I know car 1 is a bit expense... a rash decision on my 30th birthday. It's not quite a Ferrari (a Honda lol ) but fast loud cars are a weakness of mine! The only saving grace is it was a limited run, so it might hold it's value well - I plan to buy outright at the end of the finance and keep for a good few years (my annual mileage is very low).

enthusiasticsaver

The car expenses are high but if you intend keeping it at the end of the loan then this will help. Examining your monthly outgoings to make sure you are spending within budget and saving on utilities, insurances etc etc is always a good idea. Regular savers for rainy day funds pay better rates than most instant access savings accounts.

I would suggest your wife looks at a sipp if she does not get a company pension so at least she will benefit from the 25% reclaimed tax payment annually. If you are an HR tax payer then doing the avcs would be sensible if your company also ups their contribution and you will benefit from a tax point of view. Stocks and shares isas are also a good way to build up a separate fund for retirement to complement pensions.

I would prioritise paying off the 5.2% car finance as this is your most expensive debt. Then the other car finance and lastly the Ikano loan then the mortgage overpayments.

Reaper

I don't know your circumstances I'm a bit surprised somebody on your income needed to take out a loan rather than having money available for whatever from savings.

Yes, pay off your debts asap (except the mortgage which is not a priority).
Keep some rainy day money in savings for unexpected expenses to avoid the need for loans. All expected expenses should already be budgeted for.
Do the 5% AVC, that's free money currently going in the bin both from your employer and higher rate tax relief.
Try to resist expensive cars, particularly if you hardly use them! Bet the insurance isn't cheap either. Though to be honest one indulgence has to be allowed provided you are disciplined everywhere else.

justme111

1. If you are just into higher rate tax band as it looks like that you pay enough into your AVC and SIPP to get you out of higher tax band. I believe you will qualify for child benefit as well if you are basic rate so too many benefits to not do it.
2. You do statement of affairs and look what expenses are not worth it to be paid for with your life . Because that is what you essentially doing - spending time at work (and making your future 55 you to do the same) to get money to pay for stuff.
3.Pay the loans
4. Get a few months worth of expenses in cash
Then reassess.

xylophone

My wife has no pension whatsoever, and in the industry she's in (homecare) the employer offerings are generally very poor.

Her employer must now (or very soon) offer a pension.

http://www.workplacepensions.gov.uk/?gclid=EAIaIQobChMIjuTPwviV1QIVEhMbCh2I9ArGEAAYASAAEgJfhPD_BwE

Apodemus

Reaper wrote: »

Try to resist expensive cars, particularly if you hardly use them! Bet the insurance isn't cheap either. Though to be honest one indulgence has to be allowed provided you are disciplined everywhere else.

But there are two car loans and a further loan repayment! I think we are beyond a single indulgence here.

The OP needs to get all the outgoings down if they are serious about savings. While I am not always a fan of the site, I would suggest that the OP spends some time on the Mr Money Mustache website/blog where those with spendthrift habits get exposed to some pretty tough love!

jimjames

fiisch wrote: »

Car Finance @ £489 / month (5.2%)
Car Finance @ 212 / month (4.84%)
Loan @ 222 / month (3.2%)
Mortgage @ 855 / month (1.79% - coming up for renewal)
.

That raises the question, why pay extra for the mortgage when you have more expensive debts?

bostonerimus

Do a detailed budget to see where the money is going.....when I say detailed track every penny for 6 months or longer. You will be amazed where you are spending money.
The car is an obvious place to save. I've had 2 cars in the last 30 years, a Mazda 626 and a Honda Civic. I paid for them in cash to avoid finance charges.